Phil Orenstein of Democracy Project has blogged about Glenn Beck's new protest group. Phil writes:
>"When I stood up to speak, introducing myself as a Republican and promoting certain candidates for public office as potential standard bearers for disenfranchised American patriots like us, I could sense the overall disdain for politicians and political parties. I got the idea that they have no use for the Republican, Conservative or Libertarian parties or the corresponding labels that define their alleged principles. They see their elected officials and party leaders mostly as petty, self serving, unprincipled charlatans, except perhaps for Rep. Peter King. Nothing I said regarding translating their anger into action at the polls in November, made any sense to them."
The disenfranchisement of many Americans stems from the excessive size of the Amnerican federal republic. When the nation was founded it had 3 million people and the states had an average of 231,000 people each. In 1995 and 1996 231,000 foreign immigrants came to New York City alone. 231,000 is the population of Plano, Texas. Los Angeles and Chicago alone have populations of about 3 million.
The nation has become too large to govern. The problem is aggravated by the conflicting commitments to democracy and to the welfare state. Both are incompatible with ever-increasing size. Service delivery must respond to local needs so that nationalized programs like Social Security are too inflexible. Democracy requires that voters have some input into electoral processes. But the small effect of a single vote in a nation with 50 states and an average population of six million per state means that voters have no reason to believe that their voice counts. Size stifles voice. Thus, voting rates tend to be low and voting is dominated by people with something to gain from advocacy of state wealth transfers. American government therefore discourages creativity and progress by taxing production. The federal government has become a cancer on the promise of American life to provide increasing improvement in technology and standards of living. For the past 36 years, since 1971, real hourly wages have declined as government spending has mushroomed.
The problem is compounded by practical limits on the size of Congress. In a state with 231,000 people, each Senator could represent 115,000 people. In a state with six million people, each Senator reprsents three million. Each Senator today has the same representation ratio that the president had in 1790. The first House of Representatives had 59-64 members. That is one Congressman for every 48,000 citizens. The 110th Congress had 434 members. That is one Congressman for every 691,000 citizens. The ratio has increased fourteen fold.
The Federalists based much of their thinking on Montesquieu, who argued that democracy was possible only in a small republic. Madison argued otherwise in the Federalist Number 10, that the potential magnitude of the United States would support democracy because factions or special interests would counteract each other.
The Montesquieu effect is that an individual's voice has greater effect the smaller the republic becomes. The likelihood of political action increases with decreasing size because action has efficacy. Personal reputation, public respect, and economic gain are more likely to be achieved. However, crowd emotion threatens democracy. In larger republics, such as the United States in 1790, interest groups form and counteract each other. The nation is still small enough that individuals can influence interest groups. Large size makes communication and transportation difficult. There is less responsiveness due to the larger size than in the smaller democracy. But the large size has the advantage of permitting dissidents to exit and encourages more reasoned discussion by interests. The Madison effect outweighed the Montesquieu effect in 1790 because interest groups can correspond to a legitimate range of public needs.
However, there is no reason to believe that this will be so indefinitely, that size can increase infinitely and the Madison effect will continue to outweigh the Montesquieu effect. It is quite likely that the Montesquieu effect will begin to outweigh the Madison effect when interest groups are too large to motivate individuals to participate or skewness in benefits from organization become marked.
Mancur Olson has outlined this process. When the benefits from organization outweigh the organizational costs to each individual, then organization is likely. Small groups with large benefits tend to be better at organizing. They contribute to politicians and have the most access. Politics increasingly becomes a matter of economic opportunism. Specific financial arrangements that depend on special interest organization, for example the monetary creation powers of the Federal Reserve Bank, governmental privileges of health care providers, laws protecting trial attorneys and the like delineate the contours of power. General public concerns become mired in cross conflict because reward structures are unclear. Interests such as Wall Street arrange $2.5 trillion subsidies while defense, government operations, education, and other governmental responsibilities are botched or co opted by specific interests. Thus, there is a tipping point where the Montesquieu effect outweighs the Madison effect. This began to occur a century or so ago. In 1884 the Mugwumps were still willing to organize a national outcry against supposed corruption of a presidential candidate, James G. Blaine. In 2008, corruption by congressmen occurs with impunity.
There are other factors that modify size effects, specifically the development of technology. It would seem that centralized media changed the Montesquieu effect. This may be why as America grew to large population in the 19th century the republic was able to function. Yellow journalism bound the nation together. This was reinforced by radio, then television. Centralized media made the nation smaller so that its large scale was less of an impediment. The effect of the corrupting influence from centralized economic actors, railroads and other large corporations, led to a Madisonian response: reforms proposed by the Mugwumps, the Progressives and the Roosevelt New Deal. But such reforms were ineffective. They assumed away the scale and rationality problems that confront large organizations. This was because the idea of cognitive limits on management was unknown. The Progressives, moreover, chiefly focused on state reform. By the 1930s, naivete about the management possibilities of large scale had escalated even business enterprise had arrived at decentralizing responses to limits on the ability to manage large organizations. The Roosevelt New Dealers claimed that they could surmount scale impediments to competent management that had stymied America's best managers.
The centralizing trend of the federal government continued unabated. There are numerous reasons why this trend would result in destructive, suboptimal outcomes. The interest group problem becomes exacerbated. Competent execution of programs is difficult. One program after the other has either failed to be discarded; has failed to respond to public needs; has responded instead to particular needs of special interests; and/or has been mismanaged.
Thursday, March 19, 2009
Barack Obama on AIG's Payroll
H/t Larwyn. This appeared on Dan Spencer's Examiner blog:
Senator Barack Obama received a $101,332 bonus from American International Group in the form of political contributions according to Opensecrets.org. The two biggest Congressional recipients of bonuses from the A.I.G. are - Senators Chris Dodd and Senator Barack Obama.
Senator Barack Obama received a $101,332 bonus from American International Group in the form of political contributions according to Opensecrets.org. The two biggest Congressional recipients of bonuses from the A.I.G. are - Senators Chris Dodd and Senator Barack Obama.
Wednesday, March 18, 2009
America Has Adopted Swedish Finance Practices--And They Caused The Sub-Prime Crisis
Roland Huntford, The New Totalitarians: A Terrifying Portrait of an 'Ideal' Society That Has Destroyed Democracy. New York: Stein and Day, 1971.
Roland Hunter wrote an excellent book about Swedish society that was published in 1971. In the first two chapters Hunter portrays the Swedish economy as vibrant. He insightfully describes the history of the Swedish people. The Swedes never evolved out of medieval tribalism. Like the Russians, their propensity for collectivism is linked to peasant communism and strip farming, which was not abolished until 1827. The medieval peasant culture continued unabated until the 1950s (not a typo) through the bruk, "an industrial settlement lying away from the towns, out in the countryside...In the isolation of these small colonies, there grew up a powerful sense of community...it was the cradle of the Swedish welfare state. The bruk, unlike the village, belonged to one man. He owned their houses, and tenancy was tied to the job. Until late in the nineteenth century a bruk worker could not change employers without permission...If the bruk worker was not free, he was at least looked after by his master...Within the bruks, ancient Swedish attitudes were preserved without interruption..."
The limits on monarchical power that feudalism set in England and France were missing from Sweden as they were from Russia. The Swedes were not Christianized until the twelfth century. They were never occupied by the Romans. Barbarian culture continued in rural areas until the nineteenth century, and its current culture is heavily influenced by the barbaric tradition. Sweden's remoteness served to preserve its medieval mindset. Moreover, Sweden has a long history of rule by bureaucrats. "Since the early Middle Ages, many of the Swedish nobility had been dutiful royal functionaries...The identification of aristocracy and civil service has conferred on the Swedish bureaucrat a unique supremacy." The archetypal bureaucrats were King Gustav Vasa who centralized authority by introducing the idea of the despotic prince, which he adapted from renaissance Italy; King Gustavus Adolphus who organized the Swedish military; and Oxenstierna, the Chancellor under Gustavus Adolphus who organized the centralized bureaucracy. The church also traditionally played a bureaucratic role. Although Sweden became Protestant, it was not Calvinist. The church was tightly controlled by the monarch, and it was authoritarian and intolerant. "The country has always been divided into a mass of peasantry and a thin crust of merchants and bureaucrats at the top, subservient to the monarchy." In this way it parallels Russia.
Sweden nearly conquered Europe when Gustavus crossed the Baltic in 1621, invaded Poland and Germany, and reached Munich. But he fell in the Battle of Lutzen and Swedish military ambitions came to an end at Poltava, when the Swedes capitulated to the Russians without firing a shot (p. 30). Since then, and a similar defeat in Perevelotchna, the Swedes remained neutral, pleading for neutrality in the Congress of Vienna in 1815 and siding with Germany in what they called active neutrality in World War I. Although putatively neutral, Sweden assisted Hitler in World War II by permitting German access to Sweden for movement of troops and supplies until in 1943 it was obvious that the Germans would lose. Then they switched sides.
Swedes define themselves as members of gilds or groups, and Hunter argues that this is one of the many remnants of medieval culture in their society. The Renaissance asserted individuality while the Swedes, like the Russians, abjure individuality because the Renaissance never took hold in Sweden.
Only four or five "aristocratic" families dominate Swedish economic life (p. 81), for instance the Brostroms of Gothenburg and the Johnsons of Stockholm. The most important is the Wallenbergs. Swedish capitalists "have always identified themselves with the State, even after the accession of the Social Democrats...This interplay of bureaucratic control, acquiescence and private identification with the State smooths official control" (p. 81). This would seem to parallel the ambitions of "left wing" American capitalists such as the Ochs Sulzbergers, George Soros and Warren Buffett. There is probably somewhat greater opportunism here, but the aim of establishing themselves as an entrenched elitist aristocracy through punitive taxation of non-trusted estates and high income tax rates of "commoners" who might legitimately pose competition to their inefficient businesses likely motivates them.
Sweden's ideology was influenced both by Marx and Hitler. In particular, Gunnar Myrdal, the socialist economist who shared the Nobel Prize with Friedrich Hayek in 1974, was closely linked to Nazi academics:
"The professor was then a Nazi sympathizer, publicly describing Nazism as the movement of youth and the movement of the future. In Myrdal's defence, it must be pointed out that, whatever his other propensities, Hitler did have advanced ideas on social welfare, and that the social ideology of the German Nazis and the Swedish Social Democrats had much in common" (p. 63).
In contrast, the free market "capitalist" economist Friedrich von Hayek had to flee the Nazis for his life, moving to England and then America. The claim that capitalism is associated with Nazism is inverted. It was the socialist economist Gunnar Myrdal who was closely linked to the Nazis. The capitalist Hayek had to flee Nazism.
Hunter emphasizes that the Swedish economy is successful. He notes that
"Credit is rigorously controlled by the central authorities. Taxation is so designed that companies find it increasingly difficult to finance themselves, and investment and expansion depend on State loans. Since these, in their turn, depend on whatever conditions (and they need not necessarily be economic) the government decides to impose, there is considerable scope for direction."
The Swedish Central Bank "exercises a unique and absolute control over financial affairs" (p. 81) but this is not just due to its "extensive powers, which, in effect, make private banks its branches. It is also a consequence of the quasi-civil servant attitude of bankers."
In other words, the high tax rates that the United States has adopted since the 1960s coupled with Federal Reserve monetary flexibility fully adopted in 1971 directly but incompletely parallels the Swedish model. The Swedes tax at about 70% while the US taxes better than 50%. The Swedish central bank has greater control over private banks (picture the result of this policy on sub-prime lending and other political boondoggles. While Sweden is a small, homogeneous country, the US is a large and diverse one. The operation of special interest groups and lobbying is much greater in the US. While the Swedish finance system has resulted in a dull but operationally efficient economy, the power of special interests in the US, specifically private banks (but also a whole host of lobbies--sub-prime borrowers, Latin American governments and the like) has resulted in a corrupt, inefficient system. The relatively good results in Sweden also reflect the administrative capabilities of the Swedes and, as well, the very limited amount of democracy in Sweden. In contrast, special interest brokerage that has long been noticed in the US results from the Swedish approach to central banking, taxation and credit allocation when applied in the US. In Sweden there are high tax rates but the Swedes use inflation to allocate credit to firms to sustain jobs. In the US the credit is squandered in Wall Street investment schemes like the tech bubble. Institution of greater government intervention in the American setting would increase the extent of special interest brokerage and yield even more corrupt results.
Sweden can hardly be called a democracy. The chief decisions are made by appointed directorates who are most responsive to the Social Democratic Party. Cabinet ministers do not need to be approved by the diet, and they do not have any operational control over the directorates. Thus, "experts" run Sweden in a way that is (a) not democratic because it is not elected by nor responsive to the public and (b) socialist because most important economic decisions are made by the state. The claim that Sweden offers a third way is nonsensical. More than 70% of income is government owned. This does not include extensive state owned industries. Likely, Sweden is more socialist than either Cuba or China and almost as politically and personally suppressive as either.
Swedes do not care about politics (p. 77) but rather about efficient administration. Therefore, the diet has almost no power and almost all power is executed by the bureaucracy.
The Swedes go beyond punitive taxation levels (similar to the federal, state, local and social security taxes that punish many middle class Americans) and credit allocation in other ways. An additional feature of Swedish socialism that is missing from the American Federal Reserve-based one is that the Swedish government has representatives on the boards of banks and major corporations. One can imagine the quality and competence of Pickpocket Barack's or Bailout Bush's appointees to such jobs. Much as central planning-style Congressional pressure initiated and caused the sub-prime crisis, so would increased federal scrutiny over corporations politicize corporate decision making, as it has in Sweden but to an exponentially greater degree in the US. The absence of democracy in Sweden means that government functions more like a business.
Punitive taxes and fast monetary growth in the United States make capital formation largely a function of Federal Reserve Bank policy as it does in Sweden. But instead of allocating credit to functioning corporations, the Federal Reserve Bank has over many decades recklessly allocated credit to various bubbles--the Mexican debt crisis, Long Term Capital Management, the stock market bubble of the 1920s, the technology bubble of the 1990s, and on and on. It has done this by electing to allocate most reserves to money center banks that are closely linked to Wall Street. This is a policy choice of the Federal Reserve Bank. The Fed could allocate credit to all Americans or to state governments. It chooses to allocate it to special financial interests instead. This results from the functioning of special interest groups in the US that do not operate in a small nation like Sweden. Even so, Hunter points out that in Sweden economic decisions are frequently made for political rather than efficiency reasons, resulting in an economy that is less productive than it could be. If the United States and England had not existed, I would venture to guess that Sweden primarily would be engaged in strip agriculture to this day.
Left-wing advocates of the Swedish model might be surprised to learn that the current United States financial system pretty well mirrors Sweden's already. Credit allocation is governmentally determined and, although taxes are not as punitive as in Sweden, they are punitive in the US to a smaller degree. The difference in taxation in the two countries is the difference between the American stock and the Swedish burning at the stake. The socialist Federal Reserve Bank approach has repeatedly failed, caused economic dislocation, inflation and drastic misallocation of wealth since 1913 because of the same kind of corruption which President Jackson attributed to the Second Bank of the United States in the 1830s.
The point of Hunter's book is not to discuss the Swedish economy but rather to show how a nation with medieval, communistic values and centralized planning has repeatedly violated civil liberties and become a totalitarian state. I am only up to page 70 at this point.
Roland Hunter wrote an excellent book about Swedish society that was published in 1971. In the first two chapters Hunter portrays the Swedish economy as vibrant. He insightfully describes the history of the Swedish people. The Swedes never evolved out of medieval tribalism. Like the Russians, their propensity for collectivism is linked to peasant communism and strip farming, which was not abolished until 1827. The medieval peasant culture continued unabated until the 1950s (not a typo) through the bruk, "an industrial settlement lying away from the towns, out in the countryside...In the isolation of these small colonies, there grew up a powerful sense of community...it was the cradle of the Swedish welfare state. The bruk, unlike the village, belonged to one man. He owned their houses, and tenancy was tied to the job. Until late in the nineteenth century a bruk worker could not change employers without permission...If the bruk worker was not free, he was at least looked after by his master...Within the bruks, ancient Swedish attitudes were preserved without interruption..."
The limits on monarchical power that feudalism set in England and France were missing from Sweden as they were from Russia. The Swedes were not Christianized until the twelfth century. They were never occupied by the Romans. Barbarian culture continued in rural areas until the nineteenth century, and its current culture is heavily influenced by the barbaric tradition. Sweden's remoteness served to preserve its medieval mindset. Moreover, Sweden has a long history of rule by bureaucrats. "Since the early Middle Ages, many of the Swedish nobility had been dutiful royal functionaries...The identification of aristocracy and civil service has conferred on the Swedish bureaucrat a unique supremacy." The archetypal bureaucrats were King Gustav Vasa who centralized authority by introducing the idea of the despotic prince, which he adapted from renaissance Italy; King Gustavus Adolphus who organized the Swedish military; and Oxenstierna, the Chancellor under Gustavus Adolphus who organized the centralized bureaucracy. The church also traditionally played a bureaucratic role. Although Sweden became Protestant, it was not Calvinist. The church was tightly controlled by the monarch, and it was authoritarian and intolerant. "The country has always been divided into a mass of peasantry and a thin crust of merchants and bureaucrats at the top, subservient to the monarchy." In this way it parallels Russia.
Sweden nearly conquered Europe when Gustavus crossed the Baltic in 1621, invaded Poland and Germany, and reached Munich. But he fell in the Battle of Lutzen and Swedish military ambitions came to an end at Poltava, when the Swedes capitulated to the Russians without firing a shot (p. 30). Since then, and a similar defeat in Perevelotchna, the Swedes remained neutral, pleading for neutrality in the Congress of Vienna in 1815 and siding with Germany in what they called active neutrality in World War I. Although putatively neutral, Sweden assisted Hitler in World War II by permitting German access to Sweden for movement of troops and supplies until in 1943 it was obvious that the Germans would lose. Then they switched sides.
Swedes define themselves as members of gilds or groups, and Hunter argues that this is one of the many remnants of medieval culture in their society. The Renaissance asserted individuality while the Swedes, like the Russians, abjure individuality because the Renaissance never took hold in Sweden.
Only four or five "aristocratic" families dominate Swedish economic life (p. 81), for instance the Brostroms of Gothenburg and the Johnsons of Stockholm. The most important is the Wallenbergs. Swedish capitalists "have always identified themselves with the State, even after the accession of the Social Democrats...This interplay of bureaucratic control, acquiescence and private identification with the State smooths official control" (p. 81). This would seem to parallel the ambitions of "left wing" American capitalists such as the Ochs Sulzbergers, George Soros and Warren Buffett. There is probably somewhat greater opportunism here, but the aim of establishing themselves as an entrenched elitist aristocracy through punitive taxation of non-trusted estates and high income tax rates of "commoners" who might legitimately pose competition to their inefficient businesses likely motivates them.
Sweden's ideology was influenced both by Marx and Hitler. In particular, Gunnar Myrdal, the socialist economist who shared the Nobel Prize with Friedrich Hayek in 1974, was closely linked to Nazi academics:
"The professor was then a Nazi sympathizer, publicly describing Nazism as the movement of youth and the movement of the future. In Myrdal's defence, it must be pointed out that, whatever his other propensities, Hitler did have advanced ideas on social welfare, and that the social ideology of the German Nazis and the Swedish Social Democrats had much in common" (p. 63).
In contrast, the free market "capitalist" economist Friedrich von Hayek had to flee the Nazis for his life, moving to England and then America. The claim that capitalism is associated with Nazism is inverted. It was the socialist economist Gunnar Myrdal who was closely linked to the Nazis. The capitalist Hayek had to flee Nazism.
Hunter emphasizes that the Swedish economy is successful. He notes that
"Credit is rigorously controlled by the central authorities. Taxation is so designed that companies find it increasingly difficult to finance themselves, and investment and expansion depend on State loans. Since these, in their turn, depend on whatever conditions (and they need not necessarily be economic) the government decides to impose, there is considerable scope for direction."
The Swedish Central Bank "exercises a unique and absolute control over financial affairs" (p. 81) but this is not just due to its "extensive powers, which, in effect, make private banks its branches. It is also a consequence of the quasi-civil servant attitude of bankers."
In other words, the high tax rates that the United States has adopted since the 1960s coupled with Federal Reserve monetary flexibility fully adopted in 1971 directly but incompletely parallels the Swedish model. The Swedes tax at about 70% while the US taxes better than 50%. The Swedish central bank has greater control over private banks (picture the result of this policy on sub-prime lending and other political boondoggles. While Sweden is a small, homogeneous country, the US is a large and diverse one. The operation of special interest groups and lobbying is much greater in the US. While the Swedish finance system has resulted in a dull but operationally efficient economy, the power of special interests in the US, specifically private banks (but also a whole host of lobbies--sub-prime borrowers, Latin American governments and the like) has resulted in a corrupt, inefficient system. The relatively good results in Sweden also reflect the administrative capabilities of the Swedes and, as well, the very limited amount of democracy in Sweden. In contrast, special interest brokerage that has long been noticed in the US results from the Swedish approach to central banking, taxation and credit allocation when applied in the US. In Sweden there are high tax rates but the Swedes use inflation to allocate credit to firms to sustain jobs. In the US the credit is squandered in Wall Street investment schemes like the tech bubble. Institution of greater government intervention in the American setting would increase the extent of special interest brokerage and yield even more corrupt results.
Sweden can hardly be called a democracy. The chief decisions are made by appointed directorates who are most responsive to the Social Democratic Party. Cabinet ministers do not need to be approved by the diet, and they do not have any operational control over the directorates. Thus, "experts" run Sweden in a way that is (a) not democratic because it is not elected by nor responsive to the public and (b) socialist because most important economic decisions are made by the state. The claim that Sweden offers a third way is nonsensical. More than 70% of income is government owned. This does not include extensive state owned industries. Likely, Sweden is more socialist than either Cuba or China and almost as politically and personally suppressive as either.
Swedes do not care about politics (p. 77) but rather about efficient administration. Therefore, the diet has almost no power and almost all power is executed by the bureaucracy.
The Swedes go beyond punitive taxation levels (similar to the federal, state, local and social security taxes that punish many middle class Americans) and credit allocation in other ways. An additional feature of Swedish socialism that is missing from the American Federal Reserve-based one is that the Swedish government has representatives on the boards of banks and major corporations. One can imagine the quality and competence of Pickpocket Barack's or Bailout Bush's appointees to such jobs. Much as central planning-style Congressional pressure initiated and caused the sub-prime crisis, so would increased federal scrutiny over corporations politicize corporate decision making, as it has in Sweden but to an exponentially greater degree in the US. The absence of democracy in Sweden means that government functions more like a business.
Punitive taxes and fast monetary growth in the United States make capital formation largely a function of Federal Reserve Bank policy as it does in Sweden. But instead of allocating credit to functioning corporations, the Federal Reserve Bank has over many decades recklessly allocated credit to various bubbles--the Mexican debt crisis, Long Term Capital Management, the stock market bubble of the 1920s, the technology bubble of the 1990s, and on and on. It has done this by electing to allocate most reserves to money center banks that are closely linked to Wall Street. This is a policy choice of the Federal Reserve Bank. The Fed could allocate credit to all Americans or to state governments. It chooses to allocate it to special financial interests instead. This results from the functioning of special interest groups in the US that do not operate in a small nation like Sweden. Even so, Hunter points out that in Sweden economic decisions are frequently made for political rather than efficiency reasons, resulting in an economy that is less productive than it could be. If the United States and England had not existed, I would venture to guess that Sweden primarily would be engaged in strip agriculture to this day.
Left-wing advocates of the Swedish model might be surprised to learn that the current United States financial system pretty well mirrors Sweden's already. Credit allocation is governmentally determined and, although taxes are not as punitive as in Sweden, they are punitive in the US to a smaller degree. The difference in taxation in the two countries is the difference between the American stock and the Swedish burning at the stake. The socialist Federal Reserve Bank approach has repeatedly failed, caused economic dislocation, inflation and drastic misallocation of wealth since 1913 because of the same kind of corruption which President Jackson attributed to the Second Bank of the United States in the 1830s.
The point of Hunter's book is not to discuss the Swedish economy but rather to show how a nation with medieval, communistic values and centralized planning has repeatedly violated civil liberties and become a totalitarian state. I am only up to page 70 at this point.
Subscribe to:
Comments (Atom)
